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September 6, 2013

Jobs Numbers Paint Unclear Picture for Fed Tapering

Kitces: report does not ‘definitively confirm’ a taper; JP Morgan Funds Kelly: numbers ‘probably enough to keep the Fed on track to begin a wind down to QE’

Job seekers at a career fair. (Photo: AP)

Friday’s jobs report released by the Labor Department created uncertainty among market watchers as to whether the Fed will start tapering any time soon.

The economy created 169,000 jobs in August, the report said, fewer than the 180,000 expected, and unemployment dipped to 7.3%.

“Ultimately, we view the jobs report to be mostly noise from month to month, especially with a fairly ‘middle of the road’ report like this one with some pluses and minuses,” Michael Kitces, director of research for Pinnacle Advisory Group, a private wealth management firm located in Columbia, Md., and a ThinkAdvisor blogger, told ThinkAdvisor on Friday.

Like other market watchers, Kitces says the real issue heading into the fall is whether the Fed begins to taper or not. “There doesn’t seem to be much indication from today’s jobs report that definitively confirms the taper will or will not get under way soon.”

But David Kelly, chief global strategist at J.P. Morgan Funds, noted in his weekly commentary, released Monday, that “in light of last week’s upward revision to second-quarter GDP, a number of 150,000-plus on payrolls and 7.4% on unemployment would probably be enough to keep the Fed on track to begin a wind down to QE, with an announcement likely coming in a press release and Bernanke news conference following the Sept. 17-18 FOMC meeting.”

Reuters columnist Felix Solomon opined that the August report showed “that the reality of the economy was not as good as we thought it was, and that the market probably got ahead of itself in anticipating a taper beginning very soon.”

The Financial Times opined that at its Sept. 17 Federal Open Market Committee meeting, Fed Chairman Ben Bernanke “will have to decide whether the [August jobs] report reflects a weakening labor market — in which case it may want to delay a taper of asset purchases — or whether it is further evidence that the unemployment rate can keep coming down despite feeble overall growth. In that case it may choose to go ahead with tapering in September.”

Indeed, the Twittersphere was full of tweets labeling the jobs report as “lousy,” but Senate Majority Leader Harry Reid, D-Nev., opined that Friday’s employment report “shows that we are moving in the right direction, but not fast enough.”

Congress, Reid says, “has a choice when it comes to the economy: we can choose policies that accelerate job creation and expand the middle class, or the path to European-style austerity favored by Tea Party Republicans.”

Predictably, House Majority Leader Eric Cantor, R-Va., placed the bame elsewhere. "While the unemployment number dropping looks good on the surface, the details show otherwise," he said. He added that persistent long-term unemployment, "discouraged people leaving the work force, and millions taking part-time jobs because they have no choice are not signs of a strong recovery. The president’s policies are holding back strong job creation.”

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